Supervalu will consider Save-A-Lot sale

In an apparent acknowledgement of reports that several private equity firms would bid to acquire Save-A-Lot, Supervalu said Tuesday that it still intends to move forward on a plan to spin off the discounter to shareholders, but is also considering an outright sale.

In a statement, the Minneapolis-based wholesaler "reaffirmed that it is preparing for a separation of its Save-A-Lot business. As part of that process, Supervalu has pursued and continues to pursue a spin-off of Save-A-Lot," as described in registration forms with federal securities regulators.

"Supervalu is, however, prepared to consider other alternatives to improve stockholder value, and in this regard is also evaluating a possible sale of Save-A-Lot," the statement continued.

Reuters last week reported that as many as six private equity firms had sights on acquiring Save-A-Lot, the discount division that Supervalu has been preparing to spin off for more than a year, and that they were preparing bids at auction as soon as this week.

Supervalu, the report said, would then consider whether to proceed with a plan to spin off the business to shareholders. The Reuters reports cited confidential sources. It said the firms could value the chain as high as $1.8 billion.

Supervalu in January proposed a plan to spin off 80% of its ownership of Supervalu to a publicly held, stand-alone company, but reduced that figure to 60% in June, which would allow for future monetization of the company.

Save-A-Lot is expected to incur $400 million to $500 million of long-term debt prior to the spin and distribute the proceeds to Supervalu.

Supervalu in June said that the spinoff "will enable each company to focus on its own distinct operations and strategies, and permit the management of each company to concentrate efforts on its unique customers and market conditions."

Save-A-Lot as a separate company would benefit from stronger relationships with licensees and customers; allow it to make investment decisions better aligned with licensees and customers; and no longer compete for Supervalu's investment capital with its wholesaling and retail divisions.

The separation would also provide Save-A-Lot direct access to debt and capital markets, Supervalu added.

The interest from private firms comes as difficult industry operating conditions and market worries dampen the prospect of initial public offerings, including those planned by Save-A-Lot and Albertsons, sources told SN. Burt P. Flickinger III, managing director of New York's Strategic Resource Group, said a private option for Save-A-Lot could be particularly attractive as a defensive hedge against riskier investments in energy and tech, while providing the potential to generate cash from sales, licensing fees, and from the potential to transfer corporately owned stores to franchisees.